In the past year, China has invested hundreds of millions of dollars in Canadian nickel properties both producing and exploratory. Will these investments benefit Canadians?
In September,
2009, Ningbo Sunhu Chemical Products Co., China's largest nickel
trading company paid $21.8 million for a 15.6% interest in Royal Nickel Corp.
Royal is a privately-held junior Canadian company that holds a 100% interest in the undeveloped Dumont nickel property located near the town of Amos in the prolific Val d'Or mining area of northwestern Quebec.
Three former Inco Ltd. executives
(Scott Hand, Peter Goudie and Peter Jones) are the principal players
in Royal Nickel, which intends to make an initial public offering of shares sometime this year.
The Dumont property hosts an indicated resource of 365
million tonnes, grading 0.32% nickel (or 1.2
million tonnes of nickel).
Plan view of Dumont Property showing proposed open pit outline (Royal Nickel Corp.)
That's a lot of nickel; enough to satisfy global demand for an entire year. But of course it will take a huge investment (about $1.2 billion) to build a producing mine and about 20 years to methodically mine the ore, concentrate it, smelt it and refine it into a pure, saleable product.
Two months later, in November, 2009, a controlling (77%) interest in Canadian Royalties, owner of the Nunavik nickel property was purchased by Jilin Jien Nickel, a Chinese
company for $148.5 million. The
Globe and Mail reported on this hostile takeover in August 2009 when the story first broke. Located not far
south of the producing Reglan nickel mine in Ungava in Quebec's far north, Nunavik is another undeveloped nickel property with a measured and indicated resource of 5.2 million tonnes grading 0.93% nickel (or about 0.05 million tonnes of nickel).
One happy Canadian: Crowflight Minerals VP Exploration Greg Collins (foreground) with Chief Geologist Rick Sproule (background) (Photo by Patrick Whiteway)
More recently, Jinchaun Group, a major Chinese nickel company offered to buy, for $150 million, a significant interest in Crowflight Minerals Inc., the company that operates the Bucko nickel sulphide mine in the Thompson Nickel Belt of northern Manitoba.
Proven and probable reserves at Bucko are 3.7 million tonnes grading 1.45% nickel and indicated resources add another 2.8 million tonnes grading 1.53% nickel.
At a milling rate of 600 tonnes per day, this underground operation is producing nickel concentrates at a rate of about 127 tonnes of contained nickel per quarter.
Surprisingly, even though the Bucko mine is just 115 km south of the Thompson nickel smelter and refinery, concentrates from the Bucko mill are shipped 2,200 km eastward by rail to Sudbury for processing. Not the most efficient way to process nonrenewable resources.
So, why is China suddenly investing heavily in nickel properties in Canada? In the early stages of the global financial crisis, because stock prices had plumeted, these investments appeared to be purely opportunistic. But today with nickel trading at double the year-ago price, stocks have rebounded and Chinese companies continue to invest.
Is China interested purely in making a decent return on an investment or, is their interest really to export nickel concentrates to feed hungry smelters in China?
Jinchuan nickel mine, China (chchtogansu.blogspot.com)
Of the 38 operating nickel mines in China, the Jinchuan mine in Gansu Province is by far the largest, accounting for about half of that country's total nickel reserves and resources. But reserves are not being replentished at a sustainable rate.
In 2005, China had proven reserves and resources of 7.9 million tonnes
of contained nickel, down from the 8.3 millon tonnes reported in 2001.
Back in Canada, recent Chinese investments in Syncrude, one of Alberta's oil sands producers, created and uproar over concerns that raw bitumen could be exported to China as a result. Ottawa responded quickly with reasurances that unprocessed bitumen would not be exported on the Conservative government's watch. There is no indication that the same policy would apply to nickel concentrates.
Will his stainless steel plant import Canadian nickel?
Do Chinese investors, then, want to export refined nickel to China to feed hungry stainless steel plants?
At 8.8 millon tonnes, China is a leader in stainless steel production, according to the International Stainless Steel Forum, accounting for 36% of total global output in 2009 of 24.6 million tonnes.
With demand for stainless steel growing in China, the country continues to add new capacity, investing millions in new production facilities, so the need for nickel continues to grow.
For China's investments in Canada's nickel to be truely benefitial to Canadians, China would have to invest also in the downstream processing of nickel to make stainless steel and nickel alloys here in Canada. This would add significantly to the efficiency and productivity of Canada's nonrewable resources, a much discussed issue at the federal level.
Importantly, from a climate change perspective, China would be wise to invest in downstream processing here because Canada has a wealth of low-carbon emitting sources of energy (hydro, nuclear and natural gas). Therefore stainless steel produced here would have a much smaller carbon footprint than any that can be produced in China where energy is generated largely by coal.
So. When will Canada's nickel producing provinces (Newfoundland and Labrador, Quebec, Ontario, Manitoba and Alberta) realize that they have a clearer competitive advantage and roll out the red carpet to actively welcome and encourage Chinese investment in stainless steel production capacity in Canada?
When that happens, Canadians will benefit more fully from the recent and future Chinese investments in Canadian nickel resources.
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